The Reserve Bank of Australia is odds-on to begin cutting interest rates in February but markets are turning their attention to a more pressing question.

Just how many rate cuts does the RBA have in store for borrowers?

After a softer-than-expected Australian Bureau of Statistics inflation print on Wednesday, the odds of a rate cut at the central bank’s next board meeting were slashed.

Money markets are now pricing in a chance of more than 90 per cent.

Importantly, the number of rate cuts expected by the market in 2025 also rose, with traders expecting at least three 25-basis-point cuts this calendar year.

That aligns with the prediction of AMP’s deputy chief economist Diana Mousina, who expects the cash rate to end 2025 at 3.6 per cent.

Ms Mousina, like a majority of market economists, predicts the Reserve Bank to begin its monetary easing cycle in February.

“The downside surprise in today’s figures means the RBA can be more comfortable that inflation is headed into the target band sustainably,” she said.

Headline inflation is already below the midpoint of the 2-3 per cent target band but the RBA board prefers the less volatile trimmed mean figure.

The news for the trimmed mean, also called underlying inflation, was also positive, down to 2.7 per cent on a six-month annualised basis.

In summary, it was an encouraging day for the RBA, said CBA head of Australian economics Gareth Aird.

He predicts four 25bp cuts in 2025, which would leave the cash rate at 3.35 per cent at year’s end.

“This is a touch below the RBA’s estimate of the nominal neutral cash rate, which is centred on a point estimate of 3.5 per cent,” Mr Aird said.

“The risk to our call on the RBA is skewed towards an easing cycle that is a little shallower than our base case of 100bp of cuts in 2025, given the starting point of a relatively tight labour market and fiscal policy.”

Government fiscal policy was the key source of domestic uncertainty for the rate outlook, he said, given a federal election is due by May 17.

While it was not his base case, RBC Capital Markets macro rates strategist Robert Thompson said there was a “non-zero risk” of an April back-to-back cut.

He also predicted 75bp of cuts in 2025.

A May start date still has supporters in some quarters but very few voices, if any, are staking their reputation on the Reserve Bank holding into the second half.

With the direction of the next RBA move now certain, the real factor that will drive economic growth, house prices and the stock market will be how many cuts to expect in this cycle.

This post was originally published on Michael West.